In Pa., waters receded, flood tax stayed

By Allison Steele, Inquirer Staff Writer

Posted: June 30, 2013

People called it the St. Patrick's Day flood, but it was more like a perfect storm: Three days of heavy rain in March 1936 triggered a massive runoff from melting snow that had been piled higher than the cars on the streets of Johnstown.

The floodwaters surged through the Western Pennsylvania city, leaving about two dozen people dead and thousands of buildings damaged or destroyed by water levels that reached 14 feet.

The aftermath was one of America's great national disaster-relief efforts. Thousands flocked to Johnstown to help dig out, and the legislature passed a 10 percent tax on alcohol sales to help flood victims and the city.

Seventy-seven years later, Pennsylvania drinkers are still paying. Each bottle of wine or liquor sold includes the so-called Johnstown flood tax, now 18 percent. With rebuilding in Johnstown complete by the early 1940s, the revenue has gone into the state's general fund since.

"It's an extremely archaic term for an alcohol tax," said Shelley Johansson of the Johnstown Heritage Association, which manages a museum in Johnstown dedicated to the flood. "Sometimes I think the origin is not that well understood - there are people who seem to think the money somehow still benefits Johnstown."

Though many states tax wine and liquor, Pennsylvania's may be the only tax that stems from a decades-old disaster. Officially called an "emergency" or liquor tax, it is a major source of revenue that brought in close to $300 million in the last fiscal year, according to the state Liquor Control Board. Since 1936, it has generated more than $5 billion.

The tax is also invisible to customers. Receipts for liquor or wine show a 6 percent sales tax, but the 18 percent is already included in product markups, according to LCB spokeswoman Stacy Kriedeman. A $12.99 bottle of Chardonnay includes $2.33 in flood tax, for example. The tax accounts for $4 of the $22.99 that State Stores charge for a fifth of Jack Daniel's.

The tax has been the occasional target of politicians, such as State Sen. Chuck McIlhinney (R., Bucks), who this month called for repealing it as part of his liquor-privatization plan. On Friday night, senators were debating and revising that plan. Gov. Corbett, who has championed privatization, would love to see the bill on his desk before Sunday night's state budget deadline.

Nathan Benefield, director of policy analysis for the Commonwealth Foundation, a free-market think tank in Harrisburg, said the flood tax was a cautionary tale.

"Once politicians enact a tax and they have that revenue coming in, they're hesitant to take it away," he said. "It makes you very skeptical of any tax described as 'temporary.' "

Should the tax be renamed? Benefield said no.

"The name points out the ridiculousness of this tax," he said.

Johnstown had its most devastating disaster in 1889, when the "Great Flood" struck. Heavy rain collapsed dams, wiping out the downtown section and killing more than 2,200 people, one of the worst single-day losses of civilian life in the nation's history.

Johnstown recovered, and by the early part of the 20th century, it was a prosperous city thriving on iron, coal, and steel production with a population reaching 75,000. (The 2010 census counted fewer than 21,000 Johnstowners.)

The 1936 flood crippled the city, and in the aftermath, 15,000 residents petitioned the White House with letters asking for help. President Franklin D. Roosevelt toured the damage and the Army Corps of Engineers eventually channeled the rivers flowing through town in an effort to prevent future flooding. But in 1977, more dam failures led to another major flood.

The tax was extended several times before legislators made it permanent in 1951. In the 1960s, it was increased twice.

Antitax advocates and politicians have taken aim at the Johnstown levy over the years. In 2010, a Republican legislator called for eliminating it. Two Democrats proposed redirecting the tax to struggling cities. Neither effort succeeded.

So the tax lives on, providing fodder for the likes of talk-show host Glenn Beck. He has mentioned it in one of his books, warning against "temporary" taxes.

Benefield, of the Commonwealth Foundation, said the money collected by the tax was relatively small compared with the state budget, which is more than $28 billion.

"We think there are plenty of inefficiencies that can be found in the state to make it up," he said. "Removing it would give consumers a break, and it would certainly make us competitive with other states in terms of [liquor] pricing."

Others have defended the tax as a necessary if anachronistically named levy. State Rep. Joe Markosek of the Pittsburgh area is one of several Democrats who dismiss the idea of repealing it.

"It would be foolish to eliminate the liquor tax," Markosek said. Doing so "would create a huge hole in the state budget, and if the money is not replaced, it could jeopardize funding for our schools, health and human services, and corrections."

Johansson, of the flood museum, just hopes people don't blame Johnstown for the tax.

"When it comes up, there seems to be anger about it," she said. "I think it's just that the structure and name of the tax have never been changed."